Financial Crisis, Innovation and China

1
Financial Crisis, Innovation and China

• Xielin Liu, Professor and PhD
• liuxielin_at_gucas.ac.cn
• Peng Cheng
• Associate Professor and PhD
• Graduation University of Chinese Academy Sciences

2
Outline

• Is Financial crisis a threat or an opportunity
  for China?
• Can investment of US580 billion dollars lead to
  more innovation for China?
• Conclusion

3
A. Is Financial crisis a threat or an opportunity
for China?
4
Financial crisis produces unfavorable effect on
economic growth of China

• China's GDP growth rate from Q1 06 to Q209

5
Financial crisis has difference impact on various
industries in China

• Export-based manufacturing industries have been
  in trouble, such as textiles, toys, furniture,
  sanitary, hardware industries.
• Steel, fertilizers, non-ferrous metals industries
  are in recession because they purchased high
  price of raw materials during the economic
  upsurge and have to sale finished goods in low
  prices during financial crisis.
• Car, daily necessity, household appliance and
  food industries are free from crisis. Real
  estates have returned to normal after half a
  year.
• The financial services maintain good momentum
  because of capital projects and effective credit
  being in control.

6
Case of automobile

• 7 months in 2009 car sales reached 7,184,400, an
  increase of 23.38. Auto parts business has also
  been rapid development.

7
Case of high tech industry

• New energy sources (nuclear power, wind energy),
  high-speed train, ICT and other high-tech
  industry maintained a rapid development momentum.

8
Case of real estates

• Real estates have returned to normal after half a
  year.

Beijing real estate prices-week draw line from
2008-2009
9
General map of China now

• Imports and exports continued to decline, but
  decline speed is slower month by month. It shows
  that the production of some industries and
  enterprises is being gradually recovered.
• Manufacturing purchasing managers index and
  business confidence index rose, indicate that
  China's economy began to stabilize in some
  industries.
• The confidence of the market trade, such as stock
  and real estate market, is in active.

10
Factors for rapid recovery of China in the Crisis

• Spur domestic demand to fill the gap left by
  decreasing exporting
• Power of Chinese business model innovation
• Chinese financing system is healthy to fight with
  low demanding
• China uses the crisis as an great opportunity for
  China to adjust economic structure

11
1. Spur domestic demand to fill the gap left by
decreasing exporting

• Three engines for China's economic development
  from 1978-2009
• Consumption, investment, export are three engines
  of China's economic development.

12
The balance between local and overseas market

• Rapid international economic recovery in near
  term is impossible, European and American
  consumption patterns are changing. These adverse
  factors will make traditional model of export
  outdated.
• Stimulation of local demand, household
  consumption and investment, will have different
  aspects on local market.

13
Specific measures for domestic demand

• Improve the income of low-income residents by
  subsidies.
• Increase agriculture-related subsidies.
• Stimulation of farmer demands of industrial goods
  such as house appliances, agricultural vehicles
  and motorcycles.
• Subsidy the activity of replacing the old car
  with a new one to stimulate the car consumption.

14
Investment for infrastructure

• National special Investment in sectors of
  high-speed railway, express way, airport, new
  generation of broadband communications network
  infrastructure.
• This will stimulate steel, cement, cable,
  high-speed locomotive demand.

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2. Power of Chinese business model innovation

• ZTE mobile phone shipments to 45 million, ranking
  No. 6 in 2008, and in Q1 and Q2 2009 shipments
  have been the same with Sony Ericsson and
  Motorola, most likely ranked No. 4.

16
Case of telecommunication equipment

• In this period, Nortel, Motorola and other
  traditional giants are in big trouble. How can
  Chinese business to catch more while some western
  companies down in the same period?
• The Chinese business model, such as integrated
  innovation for low cost market, matched the needs
  of operator in the crisis.
• Chinese elements work here the bank can give
  them loan or credit to extend their business
  while USA and Canada cannot.

17
Case of garment industry

• Because of financial crisis, many international
  sport brands (e.g. Nike, Adidas) have to cut down
  business, and not be able to fully focus on the
  Chinese market as used to be.
• In the same time, leading sport apparel and
  footwear manufacturers of China, such as Li Ning,
  Anta company, have an opportunity to expand
  domestic market share, turnover increased by
  31.6 and 54.8 in 2009.

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3. Chinese financing system is healthy for
fighting with low demanding

• Financial resources are line with an important
  projects and state's economy.
• Chinese financing system is not in crisis, so,
  they can push commercial banks to invest more
  rather than to cut loan. This help industry to
  fight with crisis.

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4. China uses the crisis as an great opportunity
to adjust economic structure

• The industrial structure needs to be upgraded as
  most of industry are cost-driven, low efficiency,
  overcapacity and lack of core technology.
• The new strategy of development to make
  innovation as an engine or to find new growth
  model, will provide an important opportunity to
  solve China's economic deep-seated problems.

20
B. Can investment of US580 billion dollars lead
China to be more innovative?
21
Investment results of US580 billion dollars
22
Investment results of US580 billion dollars

• Infrastructure construction undoubtedly accounted
  for the largest share, reached to 37.5 percent of
  the total US 580 billion dollars investment.
• It leads to demand of high-speed train and
  accessory industries.

23
Stimulus package of China is conducive to
innovation?

• A series of national policy for stimulating the
  energy of traditional, export-oriented and
  employment growth industries, such as the
  construction of high-speed railway, will
  stimulate the demand for the building materials,
  iron and steel development
• Though they are not directly leading to
  innovation, but it can drive RD and innovation
  in high-speed train and other related industry.

24
Program for mega-RD projects

• China changes the timetable to push forward
  future mega RD projects as one of ways to help
  the economy out of crisis.
• By investing 16 major RD projects and new
  low-carbon energy sources, China invest US54
  billion dollars to speed up the innovation, to
  adjust economic structure, to encourage
  enterprise technical renovation.
• The project for next generation of wireless
  telecommunication will subsidy to Huawei and ZTE
  each a US44 million dollars for RD.

25
16 Target technologies for 2020

• General CPU
• New broad wireless mobile telecommunication
• High end digital machine tools
• Nuclear station
• New drugs
• Large Airplane
• Moon flight
• Trans-genetics products
• Anti-HIV and other dieses
• Etc.
• Not do all in the same time, which one is mature
  in terms of technology, it starts.

26
Programs for revitalization of ten industries

• In accordance with the following criteria, the
  Chinese government put forward programs for
  revitalization of ten industries
• Industries with high exporting capability but
  facing shrinking external demand
• Service Industries which are closely related to
  the manufacturing industry
• Industries far behind the developed countries
• Industries can change the consumption pattern
• Industries that fuel economic growth
• Industries with a matching 16 major RD projects

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Programs for revitalization of ten industries

• Steel industry
• Automobile industry
• Shipbuilding industry
• Petrochemical industry
• Textile industry
• Light Industry
• Nonferrous Metal industry
• Equipment manufacturing industry
• Electronics and information industry
• Logistics industry

28
Programs for revitalization of ten industries

• In 2008, China promoted the construction of 176
  high-tech industrialization projects and 146
  industrial projects.
• These projects have entered the installation
  phase of equipment procurement.

29
Programs for revitalization of ten industries

• Program for revitalization of electronics and
  information industry included 12 major projects,
  such as Integrated circuits, software, a new
  generation of mobile communications, next
  generation Internet, digital audio and video,
  broadband communications, advanced computing, the
  new electronic components, universal
  telecommunication service, network and
  information security, postal services and radio
  monitoring
• 222 electronics and information industry
  revitalization and innovation projects have been
  issued in 2009.

30
Program for new energy

• China invests a total US30 billion dollars to
  encourage energy-efficient emission reduction and
  eco-construction projects, promote new energy and
  environmental protection technology industry,
  accelerate the use of new energy and
  environmental protection technology to transform
  traditional industries, and develop recycling
  economy and clean production.
• For example, nuclear energy, wind energy, solar
  energy, new energy construction, and water
  pollution control and management.

31
C. Conclusion
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Conclusion

• Some industries can take this opportunity to
  strengthen their international competitiveness.
• The healthy financing system helps China to
  stimulate domestic demands to fit the gap left by
  the declining of export sector.
• Quick and strong actions from Chinese government
  help the industry to recover, though it is
  important to note that the effect of investment
  in innovation is relatively slow.
• The new policies are good for China to solve
  long-term China's economic structural problems,
  strengthen innovation capability and provide
  impetus for post-crisis development of China's
  economy.